Q&A Hero

Q: The interest rate on most consumer loans is based on the cost of loanable funds to the bank plus nonfunding cost plus premiums for default and time to maturity and also includes the desired profit margin on the loan. This method of pricing loans is known as______________________ .

Q: A(n)____________________________________________ is an agreement drawn up by the bank that gives the bank control of the property if the loan cannot be repaid as planned.

Q: A rule of thumb used to determine how much interest income a bank is allowed to accrue at any point in time from a consumer loan paid off in monthly installments is called the _____________.

Q: The interest rate method that adds the interest owed to the principal is called the __________ method.

Q: The interest rate method which requires the interest on the loan to be paid in advance is called the______________________ method.

Q: ____________________________________________ is the granting of loans to weaker borrowers and charging them excessive fees and interest rates, increasing their risk of default

Q: The____________________________________________ prevents redlining out certain neighborhoods and refusing to provide loans and other services in those areas.

Q: The____________________________________________ permits consumers to dispute billing errors with a merchant or credit card company and receive a prompt investigation into any billing errors.

Q: Short-term credit to finance the building of homes or other dwellings is called ______________________.

Q: The law that limits how far a creditor or credit collection agency can go in pressing a customer to pay a past due debt is the ______________________. It does not allow a debt collector to "harass" a debtor.

Q: The law that requires the full disclosure of credit terms and which promotes the informed use of credit is the ______________________. This law requires the bank to report the APR of the loan, the dollar amount of all finance charges and, where appropriate, all fees.

Q: A(n)____________________________________________ is where the customer can use the difference between some percentage of the appraised value of their home and the mortgage remaining to secure a loan. This loan can be used to fund a college education, pay for a vacation or pay for home improvements.

Q: ______________________ is a method to evaluate a large volume of consumer loans quickly with minimum labor. This method is a statistical model which predicts whether the consumer will repay the loan or not.

Q: The______________________ allows a bank to call a loan that is in default and seize any checking or savings deposits the customer may hold with the bank in order to recover its funds.

Q: When a borrower receives a loan at one lending institution to repay another it is called ________ ___________________

Q: The fact that a consumer feels a strong moral and ethical responsibility to repay a loan on time refers to the ______________________ of that individual. The loan officer must be assured that the borrower is serious about repaying the loan before they are willing to make a loan.

Q: Household borrowings tend to be ______________________. Consumers are more concerned about the size of the debt repayments than the interest rate charged.

Q: A(n)______________________ loan is a short- or medium-term loan repayable in two or more consecutive payments, usually monthly or quarterly.

Q: The purchase of a house or a multifamily dwelling such as a duplex, triplex or apartment building is usually financed through the use of a______________________ loan.

Q: A bank has a listed prime rate of 7%. They have estimated that the marginal cost of raising funds is 5%, their default risk premium on a loan is 1.5% and that they want a profit margin of 2%. They have also estimated that the term risk premium is .5%. What is the interest rate this bank will charge if they use the price leadership model (and the prime rate as their base rate)? A) 8.5% B) 9% C) 12% D) 9.5% E) None of the above

Q: A bank has a listed prime rate of 7%. They have estimated that the marginal cost of raising funds is 5%, their default risk premium on a loan is 1.5% and that they want a profit margin of 2%. They have also estimated that the term risk premium is .5%. What is the interest rate this bank will charge if they use the cost plus pricing model? A) 8.5% B) 9% C) 12% D) 9.5% E) None of the above

Q: A bank wants to estimate a firms future financial condition. Which of the following is something that allows a bank to do this? A) Statement of cash flows B) Pro forma statement C) Balance sheet D) Income statement E) None of the above

Q: A firm has net sales of $25,000, costs of goods sold of $10,000, selling, general and administrative expenses of $8000 (of which $2000 are depreciation expenses) and taxes (in cash) of $3000. What is this firms operating cash flow (using the traditional or direct method)? A) $4,000 B) $15,000 C) $5,000 D) $8,000 E) None of the above

Q: Banks need to be able to compare the firm they are examining to its industry. One company that provides information to banks about the industries their customers are in is: A) Standard and Poors B) Moodys C) Dun and Bradstreet D) Morgan Stanley E) None of the above

Q: A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firms acid test ratio? A) 1.00 B) 2.00 C) 0.33 D) 3.00 E) 1.50

Q: A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firms leverage ratio? A) 22.50% B) 44.44% C) 50.00% D) 88.89% E) None of the above

Q: A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firms net working capital? A) $9000 B) $4500 C) $4000 D) $2000 E) None of the above

Q: A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales (all of which are on credit and $2000 in net income. What is this firms average collection period? A) 18 days B) 45 days C) 72 days D) 162 days E) None of the above

Q: A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firms net profit margin? A) 10.00% B) 22.22% C) 44.44% D) 50% E) None of the above

Q: A bank wants to examine the financial success of a company by examining the profits of a company. What ratio will help the bank examine this issue? A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth)

Q: A bank is concerned because they feel that a firm will not be able to raise enough cash to pay bills that are due within the next year. What ratio are they most likely to examine to address this concern? A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth)

Q: A bank feels that a firm has expenses that are too high. What ratio are they most likely to examine to address this concern? A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth)

Q: A bank has a concern because they feel that a firm has an excessive amount of assets. They do not feel that the firm is efficient in generating sales from their current level of assets. What ratio are they most likely to examine to answer this question? A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth)

Q: A bank has a concern about the Wilson Companys debt level. They feel that it is too high. What ratio are they most likely to examine to answer this question? A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth)

Q: A bank wants to know whether a customer can raise cash in a timely fashion at a reasonable cost. They are mostly likely to look at which of the following ratios? A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets Inventory)/Current liabilities

Q: A bank wants to examine the adequacy of a business customers earnings based on the coverage ratios. They are most likely to look at which of the following ratios? A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets Inventory)/Current liabilities

Q: A bank wants to examine how well a customer markets their goods and services. They are most likely to look at which of the following ratios? A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets Inventory)/Current liabilities

Q: A bank wants to examine how well a customer uses assets to generate sales. They are most likely to look at which of the following ratios? A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets Inventory)/Current liabilities

Q: A bank wants to examine how well customer controls their expenses. They are most likely to look at which of the following ratios? A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets Inventory)/Current liabilities

Q: The management of the Frickel Frontier Freight Company wants to take the company private by borrowing money and using the proceeds of the loan to purchase the shares of the company in the market. Management believes they can increase revenues enough to be able to pay off the loan. What type of loan is management getting? A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan

Q: The Jung Company and the Nguyen Company have combined to build a new container ship docking facility in Charleston Harbor. The facility is expected to take two years to complete and cost $3 billion to construct. These companies want to borrow money in order to build this facility. What type of loan is this most likely to be? A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan

Q: The Wabash Washing Machine Company has arranged to get a loan from their bank over the next five years. They can borrow up to a pre-specified limit and repay it as many times as they need until the loan matures. The Wabash Washing Machine Company has not pledged any specific collateral for this loan. What type of loan is this mostly likely to be? A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan

Q: The Ford Motor Company needs to borrow $50 million. The First National Bank creates a packaged loan with several other banks to lend to Ford Motor Company. This loan package can be sold on the secondary market and carries a rate that is 500 basis points above LIBOR. The First National Bank expects this loan package to ultimately be held by a finance company looking for a good return on their money? What type of loan is this mostly likely to be? A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan

Q: Mary Williams needs to purchase a new bulldozer and excavator for her construction business and wants to repay the loan over the next three years in regularly scheduled payments. What type of loan does Mary need? A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan

Q: Sight n Sound is a retail store that sells refrigerators, washers, dryers and other consumer appliances. They need a loan so they can place an order with Whirlpool. The appliances will be the collateral for the loan and as an appliance is sold, the money will be passed on to the lender. An employee of the lender will periodically check to make sure what has sold and what remains in the store. What type of loan does Sight n Sound need? A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing

Q: Barbara Miller is a small dealer who specializes in healthcare stocks. She needs a loan so that she can sustain her portfolio of stocks until customer buy orders catch up with what she has already purchased from the market. She only expects to need this loan for a week. What type of loan does Barbara need? A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing

Q: Randal Ice needs a loan to purchase pet food and other pet supplies for his local pet store over the next six months. He has estimated that the maximum amount of inventory he will need in the next six months is $200,000 and he knows that he will have to use accounts receivables and the inventory he purchases as collateral for the loan. At the end of six months, he hopes he can get the loan renewed. What type of loan does Randal need? A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing

Q: Dick Dowen needs a loan to buy plants and fertilizer for his nursery for the spring planting season. This loan will automatically be paid off as the plants and fertilizer are sold to his customers. What type of loan does Dick need? A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing

Q: Lloyd Blenman is building a shopping center in Charlotte and needs to get a loan until the shopping center is finished and he can get a mortgage on the property. What type of loan does he need? A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing

Q: Which of the following is an example of a captive finance company? A) Bank of America B) GMAC C) Toyota Motors D) Koch Industries E) All of the above

Q: The most common type of loan foreign banks make in the U.S. are: A) Commercial loans B) Retail loans C) Real estate loans D) Credit card loans E) None of the above

Q: Small business lending by banks is A) Declining B) Rising C) Relatively constant D) One with no pattern E) One with an unknown pattern

Q: SNCs are also known as: A) Working capital loans B) Asset-backed loans C) Syndicated loans D) Construction loans E) Inventory loans

Q: The bank has determined the information below for one of its customers. This customer wants to borrow $1,000,000 but will maintain an average deposit balance in its account of $200,000. What is the interest rate the bank is charging the customer on the funds they have borrowed? Expected Revenues Expected Costs Interest Revenues $1,000,000 Deposit Interest $30,000 Commitment Fee $15,000 Cost of Other Funds Raised $890,000 Deposit Service Fees $5,000 Loan Processing Costs $8000 Agency Fees $6000 Activity and Record Keeping Costs $16,000 A) 10.00 percent B) 12.50 percent C) 10.25 percent D) 13.75 percent E) None of the above

Q: The bank has determined the information below for one of its customers. This customer wants to borrow $1,000,000 but will maintain an average deposit balance in its account of $200,000. What is the expected net rate of return on this loan? Expected Revenues Expected Costs Interest Revenues $1,000,000 Deposit Interest $30,000 Commitment Fee $15,000 Cost of Other Funds Raised $890,000 Deposit Service Fees $5,000 Loan Processing Costs $8000 Agency Fees $6000 Activity and Record Keeping Costs $16,000 A) 10.00 percent B) 8.20 percent C) 10.25 percent D) 13.75 percent E) None of the above

Q: A bank has a prime rate of 6 percent for its best customers. It has determined that the default risk premium for a particular customer is .4% and the term-risk premium for this loan is .25 percent. If this customer wants to borrow $5.0 million from the bank, how much in interest will this customer pay in one year? A) $332,500 B) $665,000 C) $300,000 D) $320,000 E) None of the above

Q: A bank has determined that its marginal cost of raising funds is 4.5 percent and that its nonfunds costs to the bank are .5 percent. It has also determined that its margin to compensate the bank for default risk for a particular customer is .30 percent. It has also determined that it wants to have a profit margin of .3 percent. What business loan model is this bank using to price the loan for this customer? A) The Cost-Plus Loan-Pricing Method B) The Price Leadership Model C) The Below Prime Rate Pricing Model D) Customer Profitability Analysis E) None of the above

Q: A bank has determined that its marginal cost of raising funds is 4.5 percent and that its nonfunds costs to the bank are .5 percent. It has also determined that its margin to compensate the bank for default risk for a particular customer is .30 percent. It has also determined that it wants to have a profit margin of .3 percent. If this customer wants to borrow $10,000,000, how much in total interest costs will this customer pay in one year? A) $450,000 B) $480,000 C) $510,000 D) $560,000 E) None of the above

Q: The business loan pricing method which starts with a base rate such as the bank's prime rate and adds a markup for default and term risk is known as: A) The Cost-Plus Loan-Pricing Method B) The Price Leadership Model C) The Below Prime Rate Pricing Model D) Customer Profitability Analysis E) None of the above

Q: Which of the following is a strength of the customer profitability analysis method for pricing loans? A) It considers the competition from other lenders B) It allows the bank to compete more aggressively with the commercial paper market C) It considers the cost of loanable funds and the operating costs of running the bank D) It takes the whole customer relationship into account E) None of the above

Q: Which of the following is a strength of the price leadership loan pricing method? A) It considers the competition from other lenders B) It allows the bank to compete more aggressively with the commercial paper market C) It considers the cost of loanable funds and the operating costs of running the bank D) It takes the whole customer relationship into account E) None of the above

Q: Which of the following is a weakness of the cost-plus loan pricing method? A) It does not consider the marginal cost of raising funds B) It does not give much regard for the competition from other lenders C) The bank must know what their costs are in order to make correctly price loans D) B and C above E) All of the above

Q: Which of the following is a strength of the markup (or below prime market) loan pricing method? A) It considers the competition from other lenders B) It allows the bank to compete more aggressively with the commercial paper market C) It considers the cost of loanable funds and the operating costs of running the bank D) It takes the whole customer relationship into account E) None of the above

Q: Which of the following is a weakness of the price leadership loan pricing method? A) It does not consider the marginal cost of raising funds B) It does not give much regard for the competition from other lenders C) The bank must know what their costs are in order to make correctly price loans D) The bank must consider the revenues and expenses from all of the bank's dealings with the customer E) None of the above

Q: Which of the following is a strength of the cost-plus loan pricing method? A) It considers the competition from other lenders B) It allows the bank to compete more aggressively with the commercial paper market C) It considers the cost of loanable funds and the operating costs of running the bank D) It takes the whole customer relationship into account E) None of the above

Q: The business loan pricing method that bases a loan rate on a relatively low money market interest rate (such as the federal funds rate) plus a small margin to cover risk exposure, other operating costs, and a profit margin is known as the: A) Price Leadership Model B) Below Prime Rate Pricing Model C) Cost-Plus Loan Pricing Method D) Customer Profitability Analysis E) None of the above.

Q: The method of pricing a business loan that contends that a bank should take the whole customer relationship into account when pricing each loan request is the: A) Cost-Plus Loan-Pricing Method B) Price Leadership Model C) Below Prime Rate Pricing Model D) Customer Profitability Analysis E) None of the above.

Q: Suppose a business borrower is quoted a loan rate of two percentage points above the prevailing prime interest rate posted by leading U.S. banks. This is an example of the: A) Times-prime pricing method. B) Market-based pricing method. C) Cost-plus loan-pricing method. D) Prime-plus pricing method. E) Customer profitability analysis pricing method.

Q: The business loan pricing method that estimates the total revenues a loan will generate, the net amount of loanable funds the bank must turn over to the borrower, and the before-tax yield expected from the loan is the: A) The Cost-Plus Loan-Pricing Method B) The Price Leadership Model C) The Below Prime Rate Pricing Model D) Customer Profitability Analysis E) None of the above

Q: The business loan pricing method that includes the nonfunds operating costs of making a loan plus the bank's desired profit margin is: A) The Cost-Plus Loan-Pricing Method B) The Price Leadership Model C) The Markup Model D) Customer Profitability Analysis E) None of the above

Q: According to the cost-plus model for pricing loans, factors that should be considered in pricing a loan include: A) The marginal cost of raising loanable funds to support the loan request B) Nonfunds operating costs C) An appropriate margin to compensate the bank for default risk. D) The bank's desired profit margin E) All of the above

Q: Which dimension of a business firm's financial and operating performance would the gross profit margin fit best? A) Liquidity measure B) Market indicator C) Contingent liability D) Marketability of the product or service E) None of the above

Q: Which dimension of a business firm's financial and operating performance would the percentage change in the firm's stock price fit best? A) Profitability measure B) Market indicator C) Contingent liability D) Marketability of the product or service E) None of the above

Q: Which dimension of a business firm's financial and operating performance would unfunded pension liabilities fit best? A) Profitability measure B) Market indicator C) Contingent liability D) Marketability of the product or service E) None of the above

Q: A bank that is examining the ratio of overhead expenses to net sales is examining which category of ratios? A) Expense Control Measures B) Operating Efficiency Measures C) Coverage Measures D) Liquidity Measures E) Leverage Measures

Q: A bank that is examining the ratio of costs of goods sold to inventory is examining which category of ratios? A) Expense Control Measures B) Operating Efficiency Measures C) Coverage Measures D) Liquidity Measures E) Leverage Measures

Q: A bank that is examining the ratio of total liabilities to total assets is examining which category of ratios? A) Expense Control Measures B) Operating Efficiency Measures C) Coverage Measures D) Liquidity Measures E) Leverage Measures

Q: A loan or line of credit extended to a business by a group of lending institutions in order to reduce the risk exposure is known as: A) An LBO B) A revolving line of credit C) A working capital loan D) A syndicated loan E) None of the above

Q: A business receives a three year line of credit against which it can borrow, repay and borrow again if necessary during the loan's three year term. What type of loan is this? A) Self-liquidating inventory loan B) Working capital loan C) Security dealer financing D) Revolving line of credit E) None of the above

Q: The term of an inventory loan is being set to match the exact length of time needed to generate sufficient cash to repay the loan. What type of loan is this? A) Self-liquidating inventory loan B) Working capital loan C) Security dealer financing D) Revolving line of credit E) None of the above